Step-Up in Basis in Florida: How It Works and Why It Matters for Estate Planning

​By Richard L. Steinberg, Esq. | Steinberg & Associates, P.A.

​If you inherit a home, investment account, rental property, or other appreciated asset, one of the most important tax concepts to understand is the “step-up in basis.” In many cases, it can eliminate years or even decades of built-in capital gain when an owner dies.

For Florida families, the concept matters not only after someone dies, but also while an estate plan is being designed. How an asset is owned, whether it is given away during life, and whether married spouses use ordinary joint ownership or a specialized trust can materially affect the income-tax result.
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This article explains the step-up in basis in plain English, including how it applies to inherited property, jointly owned assets, revocable trusts, retirement accounts, lifetime gifts, and Florida Community Property Trusts.

​What Is Cost Basis?

​“Basis” is the tax starting point used to measure gain or loss when property is sold. For an asset you purchase, your starting basis is generally the amount you paid, although later events such as capital improvements, depreciation, certain transaction costs, or other tax adjustments can change it.

When you sell an asset for more than its adjusted basis, the difference is generally a taxable capital gain.

• Example: James buys stock for $20,000. Years later, the stock is worth $120,000. If he sells it for $120,000 while he is alive and his adjusted basis is still $20,000, he has a $100,000 capital gain. Depending on his tax situation, that gain may be subject to federal long-term capital-gains tax and, for higher-income taxpayers, the 3.8% net investment income tax.

What Is a Step-Up in Basis?

Internal Revenue Code Section 1014 generally provides that property acquired from a person who has died receives a new basis equal to its fair market value at death. For most inherited property, the relevant value is the property’s fair market value on the date of death. Special valuation rules can apply in some taxable estates.

When an appreciated asset receives this adjustment, people commonly call it a “step-up” in basis. The appreciation that occurred during the deceased owner’s lifetime is generally no longer part of the beneficiary’s taxable gain.

• Example continued: James dies when the stock is worth $120,000 and leaves it to his daughter, Elena. If the stock qualifies for a basis adjustment to $120,000 and Elena then sells it for $120,000, she generally has no capital gain from the sale. The $100,000 of appreciation that occurred during James’s lifetime is not taxed to Elena as capital gain.

The rule can also work in the other direction. If inherited property is worth less at death than the deceased owner’s adjusted basis, the beneficiary’s basis may be adjusted downward. For that reason, “basis adjustment at death” is technically more precise than “step-up,” even though “step-up in basis” is the phrase most people use.

​Why the Step-Up Matters Even When No Estate Tax Is Due

Estate tax and capital-gains tax are different taxes. A family can owe no federal estate tax and still have substantial unrealized gains in real estate, stocks, business interests, or other investments.

For people dying in 2026, the federal basic estate-and-gift-tax exclusion is $15 million per person. As a result, federal estate tax is not an issue for most Florida families. Basis planning, however, can still affect families with far less wealth because appreciated assets can carry large built-in gains even when the overall estate is well below the estate-tax threshold.
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This is one reason modern estate planning for many Florida families should consider income-tax basis as well as probate avoidance, incapacity planning, creditor issues, beneficiary protection, and transfer-tax planning.

​How Ownership Affects the Step-Up in Basis

​The amount of an asset that receives a basis adjustment depends in part on how the asset was owned and whether it is treated as property acquired from the deceased owner under federal tax law.

Property Owned Solely by the Deceased Person

If a person owns an appreciated asset individually and the asset passes from that person at death, the asset will generally receive a basis adjustment to its fair market value under Section 1014. That is the straightforward case most people have in mind when they refer to a step-up in basis.

Jointly Owned Property Between Spouses in Florida

Florida is not a traditional community-property state. For many assets owned jointly by spouses as joint tenants with right of survivorship or tenants by the entirety, federal estate-tax rules generally include one-half of the qualified joint interest in the estate of the first spouse to die. In the typical case, that means one-half of the asset receives a new basis at the first death while the surviving spouse’s half keeps its existing adjusted basis.

• Example: Carol and David bought an investment property for $200,000 and own it jointly. When David dies, the property is worth $800,000. Assume each spouse’s share has a $100,000 adjusted basis immediately before David’s death. David’s half receives a new basis of $400,000, while Carol’s half generally retains its $100,000 basis. Carol’s combined basis becomes $500,000. If she immediately sells the property for $800,000, she generally has $300,000 of gain before considering selling costs or other adjustments.

The familiar shorthand for this result is a “50% step-up,” although the exact result can differ when ownership, contribution history, tax classification, or other facts are unusual.

Assets in a Revocable Living Trust

Putting property into an ordinary revocable living trust generally does not cause it to lose the basis adjustment it would have received if the owner had continued to hold the property directly.

This is an important distinction: a revocable living trust can be very useful for probate avoidance and continuity of asset management, but it is not automatically a tax-saving device. The tax result depends on the trust terms, ownership structure, and applicable federal tax rules.

​Community Property and the “Double Step-Up”

Federal law provides a special basis rule for qualifying community property. Under Internal Revenue Code Section 1014(b)(6), when the statutory requirements are satisfied, both the deceased spouse’s one-half share and the surviving spouse’s one-half share of community property receive a basis adjustment at the first spouse’s death. This is commonly called a “double step-up.”
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• Example: Using the same $200,000-cost, $800,000-value property, if the entire property qualifies for the community-property rule, the basis of both halves can be adjusted to a combined $800,000 at the first spouse’s death. An immediate sale for $800,000 would generally produce no capital gain from the appreciation that occurred before death.

Florida Community Property Trusts: A Potential Planning Opportunity

Florida enacted its Community Property Trust Act in 2021. The statute permits qualifying spouses to place selected property into a properly structured Florida Community Property Trust and provides that qualifying trust property is classified as community property under Florida law.
 
However, this planning technique should not be described as producing a guaranteed federal tax result. Florida law authorizes and classifies the trust, but published federal guidance specifically addressing Florida Community Property Trusts remains limited. Whether the anticipated federal basis treatment applies depends on satisfying the Florida statute and the applicable federal tax requirements.
 
The technique also involves important non-tax considerations, including ownership rights, creditor protection, divorce consequences, trust administration, homestead issues, and the circumstances of both spouses.

For a more detailed discussion, see The Florida Community Property Trust: A Powerful Tax Planning Tool for Married Couples.

What Does Not Receive the Ordinary Step-Up in Basis?

The basis adjustment under Section 1014 is powerful, but it does not apply in the same way to every asset a beneficiary receives at death.
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Traditional IRAs, 401(k)s, and Other Tax-Deferred Retirement Accounts

Traditional IRAs, 401(k)s, 403(b)s, and similar tax-deferred retirement accounts do not receive the same step-up that applies to appreciated capital assets. Distributions from a traditional inherited retirement account are generally subject to ordinary income tax to the beneficiary, except to the extent a special rule such as basis from nondeductible contributions applies.

For many beneficiaries other than a surviving spouse, an inherited retirement account generally must be emptied within 10 years after the owner’s death. The rules about when withdrawals must be taken during those 10 years can vary, and in some cases withdrawals are required each year. Because the rules depend on the circumstances, inherited retirement accounts should be reviewed separately rather than assuming the beneficiary can simply wait until the end of the 10-year period to take the money out.​

Roth IRAs

Roth IRAs also do not need a conventional basis step-up to eliminate capital-gains tax inside the account. Qualified Roth distributions are generally income-tax free, although inherited Roth accounts can still be subject to beneficiary distribution rules, including the 10-year rule for many non-spouse beneficiaries. Roth accounts therefore often remain highly tax-efficient assets to leave to heirs, but beneficiary designations and distribution rules still matter.

Income in Respect of a Decedent

Certain items are specifically excluded from the ordinary Section 1014 basis adjustment because they represent income the deceased person had earned or was entitled to receive but had not yet included in taxable income. These items, known as “income in respect of a decedent,” can include some retirement-plan benefits and other accrued income rights. They generally remain taxable when received by the estate or beneficiary.

Lifetime Gifts: Why Giving an Appreciated Asset Away Can Backfire

A lifetime gift generally does not receive a new fair-market-value basis merely because ownership changes. Instead, the recipient usually takes a carryover basis derived from the donor’s adjusted basis, subject to special rules that can apply when the asset is worth less than basis at the time of the gift.

• Example: Margaret owns stock with a $10,000 adjusted basis that is worth $150,000. If she gives the stock to her son during her lifetime, his basis will generally carry over from Margaret. If he later sells the stock for $150,000, he may recognize roughly $140,000 of gain. If Margaret instead owns the stock at death and it qualifies for a basis adjustment to $150,000, a sale at that value would generally create no capital gain from the appreciation that occurred during her lifetime.

This does not mean lifetime gifting is always a mistake. Gifts can serve important estate-tax, asset-protection, family, charitable, and succession-planning goals. It means that the income-tax cost of transferring low-basis property should be considered before a gift is made. For many families whose estates are well below the federal estate-tax exclusion, preserving a future basis adjustment can be more valuable than making an unnecessary lifetime gift of an appreciated asset.

The One-Year “Boomerang” Rule for Gifts Back to the Donor

Section 1014(e) contains an anti-abuse rule for certain appreciated property. If a person gives appreciated property to someone who dies within one year, and the property then comes back to the original donor or the donor’s spouse, the ordinary step-up is denied to that recipient. This prevents a donor from temporarily transferring appreciated property to a person near death simply to receive it back with a higher basis.

​Florida-Specific Considerations

Florida does not impose an individual income tax, a separate state capital-gains tax, or a Florida estate tax under current law. That makes the federal basis rules especially important in Florida estate planning because the principal income-tax consequences on appreciated investment property generally arise under federal law.

Florida also has distinctive property-law issues, including tenancy by the entirety, homestead protections, and the Florida Community Property Trust Act. Tax planning should therefore be coordinated with the legal consequences of changing title. A transfer that looks attractive solely from a tax perspective may have consequences for creditor protection, control, marital rights, or homestead that need to be evaluated at the same time.
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A Practical Step-Up-in-Basis Planning Checklist

• Review the adjusted basis of major appreciated assets. Families often know what an asset is worth but not what its tax basis is. Brokerage records, closing statements, improvement records, depreciation schedules, and prior tax returns may be important.
• Before giving away a highly appreciated asset, compare the gift-tax objective with the lost basis adjustment. A lifetime gift can transfer the built-in gain to the recipient.
• If you are married, review how major appreciated assets are titled. Ordinary Florida joint ownership often produces a different basis result at the first death than qualifying community property.
• Do not assume that a revocable trust changes the basis result by itself. The trust structure, tax ownership, and estate inclusion rules matter.
• Treat retirement accounts separately from taxable investment assets. Traditional retirement accounts generally carry an income-tax liability that a brokerage account may largely shed through a basis adjustment.
• Preserve valuation records after a death. Appraisals, brokerage statements, and other evidence of date-of-death value can become important years later when a beneficiary sells inherited property. For real estate and other hard-to-value assets, obtaining a qualified date-of-death appraisal can help establish the beneficiary’s basis and avoid uncertainty later.
• Review tax planning whenever the estate plan, marital status, residence, asset mix, or tax law changes. Basis planning is not a substitute for the rest of an estate plan; it is one component of a coordinated plan.

​Frequently Asked Questions About the Step-Up in Basis

Does every inherited asset receive a step-up in basis?
No. Many capital assets acquired from a deceased person receive a fair-market-value basis adjustment under Section 1014, but there are important exceptions. Traditional retirement accounts and income in respect of a decedent are common examples. The ownership and tax treatment of the particular asset must be considered.

Does a home get a step-up in basis when a parent dies?
Generally, an inherited home that qualifies as property acquired from the deceased owner receives a basis adjustment to fair market value under Section 1014. If the home was jointly owned, only the portion treated as acquired from the deceased owner may receive the adjustment, depending on the ownership structure and applicable tax rules.

Does Florida tax the capital gain on inherited property?
Florida currently does not impose an individual state income tax or a separate state capital-gains tax. Federal capital-gains tax can still apply when inherited property is later sold for more than its adjusted basis.

Does putting property in a revocable living trust prevent a step-up in basis?
Generally, no. Properly structured revocable trust property can still receive a basis adjustment at the settlor’s death. The specific trust terms and federal tax treatment matter, so a trust should not be evaluated based on its label alone.

Can married Florida couples receive a full step-up on jointly owned assets at the first death?
Under ordinary Florida joint ownership, the typical result is that only the deceased spouse’s one-half interest receives a basis adjustment. A properly structured Florida Community Property Trust is intended to seek community-property treatment that may allow both halves to receive a basis adjustment. However, published federal guidance specifically addressing Florida Community Property Trusts remains limited, and the strategy is not appropriate for every married couple.​​

Should I avoid selling appreciated assets during retirement so my heirs can receive a step-up?
Not automatically. Tax basis is only one planning factor. Cash-flow needs, investment risk, diversification, charitable goals, retirement-account taxation, estate size, and family circumstances can all outweigh the potential basis benefit. The useful question is not simply whether to hold an asset until death, but whether doing so makes sense as part of the overall plan.

​The Bottom Line

The step-up in basis can eliminate substantial built-in capital gain, but the result is not automatic for every asset or every ownership structure. For Florida residents, the most important planning questions often involve which assets should be held until death, which should be spent or gifted during life, how married couples should own appreciated property, and how trusts fit into the broader estate plan.

A good estate plan should not focus on estate tax in isolation. For many families, income-tax basis, probate avoidance, incapacity planning, beneficiary protection, retirement-account taxation, creditor concerns, and Florida property law are more likely to affect the family’s actual financial result.

If you own significantly appreciated assets or have not reviewed how your assets are titled, consider discussing the issue with a Florida estate planning attorney who can evaluate the tax and non-tax consequences together.

​Related Articles

The Florida Community Property Trust: A Powerful Tax Planning Tool for Married Couples

Florida Estate Planning Checklist: 7 Essential Documents Every Married Couple Needs​

Florida Wills for Married Couples: What Should Your Will Include?

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Legal Disclaimer: This article has been prepared by Steinberg & Associates, P.A. for general informational purposes only and does not constitute legal or tax advice. The information is based on federal and Florida law as of the date of publication and is subject to change. Every individual’s circumstances are different, and nothing in this article should be relied upon as a substitute for advice from qualified legal and tax professionals regarding a specific situation. Reading this article does not create an attorney-client relationship between you and Steinberg & Associates, P.A. or any of its attorneys. This article was prepared by Richard L. Steinberg, Esq. of Steinberg & Associates, P.A., with the assistance of artificial intelligence drafting tools.

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